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- Copper Hits Two-Year Low on Trade War Fears
- PPI Data Shows First Decline Since 2017
- Insider Activity: JPMorgan Chase (JPM)
- Unusual Options Activity: General Electric (GE)
| Copper Hits Two-Year Low on Trade War Fears Posted: 12 Aug 2019 03:00 AM PDT
Metal now priced below profitability for miners. Copper prices have been declining lately, as slowing global economic growth have weighed on the metal's price. The recent surge in trade war fears have driven prices to a two-year low of $2.53 per pound, well below $3 per pound, a price where most long-term mining operations for the metal are economically viable. Should prices continue to slide, or stay below this price, a shortage may develop in the near future as reduced supply comes to market. Due to copper's use in construction, technology, and other economic sectors, the commodity has earned the nickname "Dr. Copper." Rising prices for the metal indicate economic expansion, and falling prices indicate fears of a slowdown. Such fears have caused prices of other commodities, outside of precious metals, to slide in recent weeks as well. Action to take:We think copper is an interesting investment when it can be bought at a discount to the costs of mining new supplies, and would look to start buying into the shares of major copper mining operations at a discount to that price that gives us a sufficient margin of safety for a turnaround to be likely. We suggest targeting major copper names like Southern Copper (SCCO)or Freeport McMoRan (FCX) should the metal get near $2 per pound.  |
| PPI Data Shows First Decline Since 2017 Posted: 12 Aug 2019 03:00 AM PDT
Inflation outlook steady under 2 percent. Producer Price Index data for July showed the first downturn for the index since early 2017. With a drop of 0.1 percent month-over-month for the Index less food and energy, against an expected rise of 0.1 percent, the data shows that inflation rates and expectations remain low. The full index indicates a potential year-over-year rise in PPI at 1.7 percent, well below the 2 percent inflation rate that policymakers have targeted in recent years. Low inflation has been cited by Federal Reserve officials to justify their decision to make a quarter-point cut in interest rates recently, and have been cited by President Trump as a reason to justify further cuts—as much as one percent lower, to 1.25 percent from the current 2.25 percent. Today's PPI data shows that inflation measures are running well below the target of policymakers, and may even be slowing down. Consequently, there remains room for further interest rate cuts later in the year. The PPI data also shows that service prices decreased 0.1 percent following a 0.4 percent gain in June. It also shows that the cost of goods rose 0.4 percent after declining 0.4 percent the prior month. So while inflationary measures are slowing down overall, the deeper picture still shows a mixed economy.
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| Insider Activity: JPMorgan Chase (JPM) Posted: 12 Aug 2019 03:00 AM PDT
Director makes $2 million buy. On Thursday, August 8th, Mellody Hobson, a director at JPMorgan Chase (JPM), bought 18,200 shares, increasing her stake to just over 101,300 shares. The total cost of this latest buy came in at just over $2 million. Hobson has been a repeat buyer of shares this year, buying 19,700 shares back in April. Many insiders at the big bank have been sellers of shares this year, although at higher prices than where shares currently trade. JPMorgan Chase is a global financial powerhouse, with traditional banking, commercial and investment banking, wealth management, and other services for customers large and small. The company was founded in 1799 and employs nearly 250,000 worldwide. Action to take: Banks and other financials have been hard-hit by the recent trade-war fears. However, falling interest rates lower the cost of capital to banks, and more origination activity could occur for mortgages and business loans as rates decline. The bank looks attractively valued at 11 times earnings, and with its high profit margin. The underperformance in shares this past year has also led to a 3.3 percent dividend yield, on the high side for large banks. Shares look attractive as a long-term buy under $110 per share, and traders should look at buying call options on the bank when financials have a brutal day in the market.  |
| Unusual Options Activity: General Electric (GE) Posted: 12 Aug 2019 03:00 AM PDT
Surge of in-the-money call buying. The highest-volume option trade on Friday occurred in an unusual trade based on shares of General Electric (GE). The January 2020 $6 call options saw a surge in volume. With shares over $9, these options are about 50 percent in-the-money. If GE shares rally, the option should move higher penny-for-penny. If shares drop, they could still have some value at expiration. With the number of unusual options usually focusing on short-term or near-the-money trades, this one stands out as a potential way to play a multi-month rally in shares between now and January while only paying about one-third the price of buying shares outright. Action to take: General Electric has been out of favor with the market for several years, but its new CEO has been active in restructuring the company along its old industrial lines with various asset sales and divestments. The company has also been weighed down by its business with Boeing and the 737 Max, so any improvement in that situation could lead shares to an immediate boost. Shares look like an interesting value here, but for the short-term profit potential, we like this unusual, deep-in-the-money trade, where a $330 cost per contract can give you the same dollar-for-dollar returns against buying 100 shares and paying at least $920.  |
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